RBI accused of rendering non performing assets as unconstitutional

In a new row, the Reserve Bank of India has been dragged to court by several promoters claiming that its prudential norms defy the right to equality under Article 14 of the Constitution of India. Supreme court will soon be hearing the case which has rendered the Non Performing Assets of RBI as unconstitutional.

The case will be addressing the so-called ‘unconstitutional’ definition of non-performing assets (NPA) given by RBI and that given by the Securitisation Act of the parliament. Legal experts are of the belief that both definitions are in contradiction to each other, reported the DNA.

The involved 55 companies, from Tamil Nadu and Gujarat, have been till the hearing granted status quo. The Supreme Court had earlier struck down the petition siding with the RBI and saying that it’s NPA classification was in sync with Section 2(1)(o)(a) of the Securitisation Act, 2002. The judgment has now directed the RBI to enact guidelines for all such institutions, but as of now the RBI cannot issue any guidelines as the case will continue in the Supreme Court.

Financial institutions and banks which are not governed by the RBI regulation can define their own timeframe to classify the asset as an NPA, reported DNA.

Advocates Vishwas Shah and Masoom Shah have argued that the Securitisation Act and Reconstruction of Financial Assets and Enforcement of Security Interest Act, (Sarfaesi Act) 2002 need to be applied uniformly for all borrowers and have thus challenged the RBI guidelines on income recognition, provisioning and asset classification under prudential norms as being unconstitutional.